US retreat raises stakes for Asia-Pacific trade: Malaysian minister

Malaysia's Trade Minister says the United States' clear intention to isolate itself from the rest of the world has given new imperative for countries in the Asia Pacific, including Australia, to co-operate on trade and investment.

Darell Leiking, in Australia last week to drum up business between the $20 billion trading partners, said that at the same time as America was retreating China was reshaping the world order with its economic outreach.

Australia and Malaysia are part of the proposed Regional Comprehensive Economic Partnership (RCEP), a free trade agreement between 16 countries in the Asia Pacific, including China, that would sideline the United States.

"We can’t grow without you nor can you grow without us, and China and America must think that way as well," Mr Leiking told The Age and Sydney Morning Herald.

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"On the other hand we have our traditional economic friend, America, and they want to do it on their own."

Mr Leiking's Pakatan Harapan (Hope Alliance) coalition government is trying to rebuild confidence in Malaysia after the ousting of former prime minister Najib Razak, who lost office in a shock election defeat last May last year and is now on trial over a multibillion-dollar embezzlement scam.

Mahathir Mohamad, Malaysia's Prime Minister.Credit:Akio Kon

Mr Leiking said China and America's trade war was hurting his country, which is Australia's 10th biggest trading partner. But it was also starting to attract manufacturers shifting operations out of China to avoid American tariffs.

Like Australia, China is Malaysia's largest trading partner and its biggest source of foreign investment.

Former prime minister Mr Razak signed Malaysia up to China's global "Belt and Road" infrastructure program, to build the 640 kilometre railway connecting the two coasts of peninsula Malaysia.

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His replacement Mahathir Mohamad - a 94-year-old who first ruled the country from 1981 to 2003 - cancelled the project on coming to power and has since negotiated to slash its costs by a third, saving 21 billion ringgit (AU$7.4 billion).

Mr Leiking said countries did risk "selling their sovereignty" if they took on Chinese debts they could not pay, as was the case with Malaysia's original deal with China.

"If it is infrastructure that is sorely needed and I’m within my means, that’s not selling your sovereignty," he said. "But when I know I cannot repay, and I take an additional 20 billion [ringgit], that is selling your sovereignty.”

"And if you look back at how our Prime Minister had done that, we would think that the previous regime sold our sovereignty."

However he compared America's criticism of the program to a jealous businessman attacking the integrity of a more successful rival, with China's economic engagement set to "realign the world order".

"It’s no longer about my nuclear power, it’s no longer about my military assets - the Chinese, at least in my opinion, are doing it economically," he said.

James Chin, director of the University of Tasmania’s Asia Institute, said the future of Australia and Malaysia's trade relationship was service industries, which would develop faster under the RCEP.

Both countries want that deal finalised by the end of this year and was seen as an alternative to the Trans-Pacific Partnership that US President Donald Trump killed.

“People see it as one of the tools they can use in case the trade war gets out of control,” Professor Chin said.

Mr Leiking said his trip to meet with the federal and state governments and businesses was to promote Malaysia as a destination for investment in industries such as industrial and food manufacturing, and as a logistics hub to the rest of the world.